Bankhall Compliance Update Charlie Edwards Regional Manager – Consultancy Services.
Bankhall Conference 2009 - Skandia
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Transcript of Bankhall Conference 2009 - Skandia
Are traditional Cautious Managed funds still relevant?
Andrew Blair, SIG Head of Business Development
Bankhall – 3rd November 2009
for financial advisers only
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Agenda
• The traditional Cautious Managed fund
• Introduction to alternative asset classes
• “4 Pillars” of a strong, modern multi-asset fund
• Conclusion
• Skandia Diversified fund
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IMA Cautious Managed Sector
• Funds investing in a range of assets with the maximum equity exposure restricted to 60% of the fund
• The fund will have at least 30% invested in fixed interest and cash.
• There is no specific requirement to hold a minimum % of non UK equity within the equity limits.
• Assets must be at least 50% in Sterling/Euro and equities are deemed to include convertibles.
Source: IMA Cautious Managed Sector definition3
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Example of a traditional Cautious Managed fund
Source: Skandia Investment Group; Skandia Cautious fund asset allocation 31/03/2003
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Example of a traditional Cautious Managed fund
Source: Financial Express; Gartmore Cautious Managed fund asset allocation 30/06/2006 – 30/06/2009 5
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IMA Cautious Managed Sector
Source: Financial Express IMA Unit Trust/OEIC/ Cautious Managed sectors, 5 years to 30 September. Bid to bid basis. Past performance is not a guide to future performance.
5 years to 30 September 2009
-10
10
20
30
40
50
60
0
Per
form
ance
P
erce
nta
ge
(%)
IMA Cautious Managed
66.73% differential between best and worst performing
funds
+64.04%
-2.69%
22.28% Sector Average
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7Source: Financial Express IMA Unit Trust/OEIC/ Cautious Managed sectors, 1 year to 30 September 2009. Bid to bid basis. Past performance is not a guide to future performance.
IMA Cautious Managed
-10
-0
5
10
15
20
25
-5
Per
form
ance
P
erce
nta
ge
(%)
-15
+28.56%
-12.53%
7.62% Sector Average
41.09% differential between best and
worst performing funds
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1 year to 30 September 2009
IMA Cautious Managed Sector
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8Source: Lipper Hindsight IMA Unit Trust/OEIC/ Cautious Managed sectors, 5 years to 30 September 2009. Bid to bid basis. Past performance is not a guide to future performance.
IMA Cautious Managed
8.13% Sector Average
14.79%
3.92%
Ann
ualis
ed V
olat
ility
P
erce
nta
ge
(%)
0
4
6
8
10
12
14
2
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5 years to 30 September 2009
IMA Cautious Managed Sector
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9Source: Financial Express IMA Unit Trust/OEIC/ Cautious Managed sectors, 1 year to 30 September 2009. Bid to bid basis. Past performance is not a guide to future performance.
IMA Cautious Managed
0
10
15
20
25
30
5
13.46% Sector Average
27.21%
1.56%
Ann
ualis
ed V
olat
ility
P
erce
nta
ge
(%)
1 year to 30 September 2009
IMA Cautious Managed Sector
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Cautious Managed Fund
Exposure to Equities
Exposure to Fixed Interest
Strategic Asset Allocation
Tactical Asset Allocation
Exposure to Commodities
Exposure to Private Equity
Exposure to Hedge Fund like strategies
Structure of a traditional Cautious Managed fund
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Introduction of Alternative Asset Classes
• Regulation expanded– UCITS III– COLL Sourcebook
• Alternative asset classes used for investment purposes and not just Efficient Portfolio Management
• More choice from alternative fund vehicles other than Property & BlackRock Gold & General:
– Market Neutral – Infrastructure – Water
– Volatility – Currency – Timber
– Commodities – Hedge fund – Tactical
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Benefits of Alternative Asset Classes
• Add further diversification
• Low correlation to existing asset classes
• Low correlation within Alternative asset classes
• Enhance risk control across the fund
• Aiming to provide positive risk adjusted returns
• Strong potential to dial-down risk without reducing returns
• Further enhances the efficient frontier
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Efficient portfolio frontier
For Illustrative purposes only Standard Deviation
Exp
ecte
d R
etur
n
Cautious
Diversified
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JPM Highbridge Statistical Market Neutral
• The fund aims to generate a positive return regardless of the direction of the stock market.
• Utilises a market neutral long/short equity strategy
• Strategy based on mathematical modelling to exploit small market inefficiencies
• Derives returns from equities regardless of market fluctuations giving low correlation and volatility
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• Boutique asset management of former Goldman Sachs partner and Downing Street Policy Advisor Gavyn Davies
• Designed to provide the same benefits as hedge fund investment in transparent and liquid form
• The Fulcrum Hedge Fund Replacement is a UCITS III fund which invests in currency, equity, commodity, fixed income and credit markets in a similar manner to hedge funds.
• Designed to outperform the overall hedge fund universe.
Fulcrum Alternative Beta Plus
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• Benefits of Hedge Funds– Superior Risk-adjusted return– Low correlation with traditional asset classes– Have an Absolute Return flavour
• Fulcrum’s Hedge Fund Replacement is:– Much lower cost than fund of hedge fund exposure
because there is only one layer of fees and does not charge a performance fee
– Highly liquid– Regulated (UCITs III)– Transparent
Fulcrum Alternative Beta Plus
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Correlations between asset classes
Asset Classes
Alternatives UK EquitiesInternational
EquitiesCorporate
BondsGilts
Alternatives 0.43 0.58 0.06 0.02
UK Equities 0.43 0.92 0.33 -0.13
International Equities 0.58 0.92 0.24 -0.07
Corporate Bonds 0.06 0.33 0.24 0.52
Gilts 0.02 -0.13 -0.07 0.52
Source: Financial Express, 30/09/1999 – 30/09/2009. Credit Suisse Tremont Hedge Fund Index, FTSE All Share Index, MSCI AC World Index, IBOXX Sterling Corporate Bond All Maturities Index & IBOXX Sterling Gilts All Maturities Index. Past performance is not a guide to future performance.
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What makes a Multi-Asset fund
• Exposure to all asset types, including alternatives
• Utilising Strategic and Tactical asset allocation
• Aims to outperform benchmark/sector on a risk adjusted basis
• Adaptability to current market conditions
Just changing the fund name is not enough!
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Alternative Asset
Classes
Providing Diversification
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“4 Pillars” of a modern Multi-Asset fund
Adding Alpha
TacticalAsset
Allocation
StrategicAsset
Allocation
Minimising Client Risk
Manager Selection
Single Strategy v
MultiManager
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Diversifying asset classes
Source: Financial Express, Total Return, Bid to Bid with net income re-invested, discrete years from 01/01/1999 – 31/12/2008. Past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up.
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Cautious Managed Fund
Multi-Asset Fund
Exposure to Equities Exposure to Fixed Interest Strategic Asset Allocation Tactical Asset Allocation Exposure to Commodities Exposure to Private Equity Exposure to Hedge Fund like strategies
Traditional Cautious Managed fund v Multi-Asset fund
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Are traditional Cautious Managed funds still relevant?
• Restricted in exposure to asset classes
• Rigid in terms of changing asset allocation
• Not using full investment powers available
• Not fully diversified
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Skandia Diversified fund
Key Points
Objective To provide investors with long term capital growth through investment in a diversified range of asset classes
UK IMA Sector
Cautious Managed
Type of fund Multi-Manager
TER* 1.79%
Source: *Skandia Investment Group; as at 31/07/2009
2525Source: Skandia Investment Group; as at 30/09/2009
Min Neutral Max Current
Cash 0% 0% 10% 4.25%
Bonds 30% 30% 40% 30.00%
Equities 40% 50% 60% 52.75%
Alternatives 10% 20% 24% 13.00%
Skandia Diversified fund TAA benefits
2626Source: Skandia Investment Group; as at 30/09/2009
Skandia Diversified fund allocation
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Skandia Diversified fund
Asset Classes and Managers
Fixed Interest + Cash
Alternatives
Morgan Stanley Commodities Fund
Commerzbank UK Premia Fund
JPM Highbridge Statistical Market
Neutral Fund
Fulcrum Alternative Beta
Plus Fund
Aviva Tactical Asset Allocation
Fund
Morgan Stanley FX Alpha RC400 Fund
GSAM Sterling
Liquidity Fund
BlackRock
Royal LondonGSAM
JP MorganPIMCO Inflation
Linked Bond Fund
M&G Optimal Income Fund
Threadneedle
Source: Skandia Investment Group; as at 30/09/2009
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International Equities
(Skandia GlobalDynamic Equity)
Skandia Diversified fund
UK Equities
OriginMirabaud UBS Lazard
Schroders(Skandia Global Dynamic Equity)
BGISkandia UK
Best Ideas Fund
Skandia UK Strategic Best
Ideas Fund
AcadianEpoch
Bernstein
QMAMarsico
State Street* Argonaut Gartmore
MIR FuNNeX**First State
Source: Skandia Investment Group; as at 30/09/2009. * Following the forthcoming departure of Dirk Enderlein from Allianz RCM, State Street have taken control of this mandate and are currently managing it passively.**Please note the Investment Adviser is Dalton Capital (Guernsey) Limited and Dalton Strategic Partnership LLP (Dalton). FuNNeX Asset Management, Inc. provides investment advice on a non discretionary basis to Dalton.
Asset Classes and Managers
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Skandia Diversified fund performance
Source: Financial Express, Data to 30/09/2009, bid to bid with net income reinvested. Past performance is not a guide to future performance. Skandia Cautious fund changed its name on 15 May 2009 to Skandia Diversified fund.
Skandia Diversified fund Performance Quartile
1 month 4.36% 1st
3 months 15.43% 1st
6 months 24.15% 1st
1 year 15.03% 1st
3 years 2.09% 2nd
5 years 25.10% 2nd
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Conclusion
• Cost effective solution for investors seeking long term out-performance with controlled volatility
• Added value from diversified weighting of asset classes and manager selection
• Flexible asset allocation between asset classes, investment styles and regions
• Best in class managers
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Important investment notes• What you get back will depend on investment performance and is therefore not guaranteed. The
value of investments and any income from them can fall as well as rise.• When you cash in your investment you may get back less than you invested, especially in the early
years.• The past performance of an investment is not a guide to future investment performance.• You should appreciate that there are inherent risks in all types of investment. There can be no
guarantee that the objectives of the funds will be achieved.• This Fund includes some exposure to emerging markets, which tend to be less well regulated and
more volatile than more established stock markets, so increasing the potential risk to investors.• Where the fund enters into derivative transactions with counterparties, there is a risk that they may
default on their obligations or become insolvent.• At times, the Fund may invest in smaller companies, which may carry a higher degree of risk and be
more difficult to sell than larger companies.• You should remember that the real value of your investment will be reduced by inflation.• Where the Fund invests in securities designated in a different currency to the Fund, the value of the
Fund may rise and fall purely as a result of exchange rate fluctuations.
Skandia Investment Group is a trading name of Skandia Investment Management Limited. Skandia Investment Management Limited is authorised and regulated by the Financial Services Authority. FSA Registered Number 208543 Registered Number: 4227837 England Registered office: Skandia House, Portland Terrace, Southampton, SO14 7EJ, United Kingdom
This presentation is designed for professional advisers only and should not be relied upon by existing or prospective clients of Skandia.
November 2009
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